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Steel yourself

HAVE THE UPDATED PROCUREMENT RULES TO SUPPORT BRITAIN’S STEEL INDUSTRY HAVE CHANGED ANYTHING

On 3 April 2016, the government announced ‘new measures’ that it said would allow British steel companies to compete on a level playing field for public sector contracts. It said that around £300bn is due to be spent on major UK infrastructure projects over the next five years, and that the government had a stated plan to secure the long-term future of the steel industry in the UK. It announced two new initiatives that it claimed would support the ability of steel suppliers in this country to compete with international suppliers for major government and public sector contracts.

Those initiatives are:

for all public procurements that involve the supply of steel, contracting authorities will need to consider responsible sourcing, the training that suppliers give to their workforce, carbon footprint, protecting health and safety of staff, and the social integration of disadvantaged workers; and

the establishment of a list of approved steel suppliers who must meet stringent criteria including around health and safety, environmental impacts, responsible sourcing, supply chain management and workforce training.

These initiatives were together described by Business Secretary Sajid Javid as (see www.legalease.co.uk/uk-steel):

… changing the procurement rules on… major infrastructure projects [thereby] backing the future of UK steel – opening up significant opportunities for UK suppliers and allowing them to compete more effectively with international companies.

GUIDANCE WAS IN PLACE ALREADY

In fact, the government had already previously issued steel purchasing guidance in October 2015, which required central government departments, executive agencies and non-departmental public bodies to take account of social and environmental impacts where those impacts are linked to the subject matter of the contract. See www.legalease.co.uk/procuring-steel.

The initiatives announced on 3 April extend that guidance to cover all contracting authorities (NHS trusts, local authorities etc), although arguably these latter authorities are less likely to be purchasing large quantities of steel in any event.

The announcement therefore just extends an existing policy that was already in place to all contracting authorities. One question is whether the existing policy actually amounts to a change to the procurement rules or not.

WHAT DO THE ‘PROCUREMENT RULES’ (WHICH THE GOVERNMENT SAYS IT IS CHANGING) SAY?

Contracting authorities must award public contracts on the basis of the most economically advantageous tender assessed from the point of view of the contracting authority (under Art 67(1) and (2) of Directive 2014/24/EU (the Directive); Reg 67 of the Public Contracts Regulations 2015 (the Regulations)). This assessment is often based on a combination of price and quality. Award criteria may not confer unrestricted choice on the contracting authority and must ensure the possibility of effective competition. All award criteria must afford equal treatment of economic operators (regardless of nationality) and be transparent, proportionate and non-discriminatory.

The procurement rules are therefore clear: there can be no unequal treatmen or discrimination. It is unlawful to favour one operator over another just because it is from a home state. The government’s announcement of 3 April does not change this. Furthermore, the existing procurement rules in fact already allow the contracting authorities to take into account environmental and/or social aspects linked to the subject-matter of the contract in question.

DO THESE INITIATIVES CHANGE THE RULES?

Essentially, no. The guidance issued in October 2015 gives examples of social aspects that a contracting authority may take into account. These include:

… the protection of health and safety of staff involved in the production process, the social integration of disadvantaged workers or members of vulnerable groups among the staff performing the contract, such as the long-term unemployed, or training in the skills needed to perform the contract, such as the hiring of apprentices.

More detailed examples of such social considerations are set out in a non-exhaustive list at Annex A of the October 2015 guidance and these cover such areas as sustainable sourcing and production, supply chain management, skills and training, health and safety, and other community benefits. As long as such criteria were linked to the subject matter of the contract they would always have been permissible under the Directive/Regulations.

What the rules do not permit (and the government announcement does not propose) is for a contracting authority to award a contract to a particular supplier because it is located in a particular member state or because its workers’ jobs are under threat.

In theory there is no limit to the weight that a contracting authority can give to social and environmental factors when setting the award criteria and contract conditions for a particular procurement, and there is no rule that says that price must trump or outweigh such factors. The government clearly wants contracting authorities to make full use of such flexibilities as there are in the Directive and Regulations.

So can these criteria be used lawfully to enable the purchase of British steel? Once criteria have been set, the authority must award the contract to the bidder which best meets the criteria. Contracting authorities may therefore consider whether to choose criteria which give weight to social and environmental factors, but will not want to go too far down this road: ultimately the Regulations still require them to assess the most economically advantageous tender, and the authorities will still want value for money for its own sake anyway.

In summary it is possible that a creative combination of contract conditions and heavily weighted award criteria relating to British quality standards (or their equivalents), sustainable sourcing of materials, the supporting of the long-term unemployed into work and taking on of apprentices, and compliance with rigorous health and safety standards,may have the consequence of enabling UK steel suppliers to see off competition from suppliers with less exacting standards. However, this is not without risk for contracting authorities. The procurement framework exists to regulate the public purchasing of goods and services, not as a lever of social policy. There must come a point at which the weight given to social and environmental issues risks becoming disproportionate to the subject-matter of the contract, and undermines a contracting authority’s ability to assess (as required by the rules) which bid offers the most economically advantageous tender.

Contracting authorities may feel understandably cautious about ‘pushing the boundaries’ when it comes to social and environmental issues. Despite the government’s exhortations to contracting authorities to fully exploit the rules in this area, it is on those authorities that the costs and delay will fall if they get it wrong.

Announcing the initiatives, Minister for the Cabinet Office and Paymaster General Matt Hancock stated:

When public bodies buy steel they must take account of the true value of buying British.

It would be more accurate to state:

When public bodies buy steel they may take into account social and environmental criteria (which can sometimes be easier for a local supplier to respond to), but public bodies cannot favour British suppliers because they are British.

As to the government’s proposed list of approved suppliers, no one who meets the stated criteria can lawfully be excluded on the grounds of nationality or member state of establishment.

BARRIERS AND PLAYING FIELDS

The guidance issued in October 2015 was presented as (emphasis added):

… address[ing] any barriers that prevent UK suppliers of steel from competing effectively for public sector contracts.

In a similar vein, the announcement on 3 April was couched in terms of allowing UK suppliers of steel to ‘compete on a level playing field’ (emphasis added).

However, the EU procurement rules expressly mandate a ‘level playing field’ as between suppliers across the EU, and expressly prohibit any barriers to intra-community trade. On an EU level, there were no barriers for the government to remove, and the playing field was already level.

The much-discussed issue of what can be done to protect the jobs at Port Talbot (in the immediate term) and the steel industry more generally, against cheap imports of steel from outside the EU (notably China), is an entirely separate question of international trade and tariffs, rather than EU procurement rules.

THE CONTEXT OF THE ANNOUNCEMENT

The government’s press release was obviously prompted in part by Tata’s announcement on 29 March 2016 that it intends to pull out of all of its UK operations, with the consequential threat to an estimated 40,000 jobs. However the wider context is the EU referendum. The rules in question have the EU Treaty as their foundation.

In the run-up to the referendum the government may wish to be seen by those considering an ‘out’ vote to be flexing its muscles by bending EU rules in order to benefit UK businesses. However, the initiatives announced do nothing to bend – let alone change – EU procurement rules. The rules can only be changed at an EU level, and any actual bending or disapplying of those rules would likely be met by swift infringement proceedings by the European Commission.

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